First Majestic Silver Corp (TSX:FR) announced the appointment of Guillermo Lozano as Vice President of Exploration. Lozano holds a BSc degree in geology from the National Polytechnic Institute in Mexico City, an MSc in geology from the Missouri University at Columbia and an MBA in Finance from the University of Texas at El Paso. He has 30 years experience in Mexico and worked previously for Canplats, Kennecott, the Peñoles group and, most recently, spent 10 years with Silver Standard as Country Manager for Mexico and Exploration Director.

Previously this month, First Majestic announced 2Q net earnings of $15.3 million, $0.14 per share, on revenue of $54.8 million. Earnings were down 50% from 2Q 2011, and revenue was down 19% from that time period, developments attributed to the lower cost of silver. Silver-equivalent production was up 14% to 2.1 million ounces, and silver production was up 6% to 1.92 million ounces. Cost of production was $8.83 per ounce, up 6% from a year earlier.

President/CEO Keith Neumeyer tells Resource Clips, “Guillermo Lozano is a very well-known and respected geologist in Mexico. He spent the last 10 years at Silver Standard as their man in Mexico. There were several companies trying to get him, and we were fortunate in having him join us. We hadn’t had a VP Exploration before and actually created the position for him. It allowed us to reorganize the entire geological department, which has become quite large. We’ve got over 50 geologists now spread around our mines and over 100 support staff. We needed to divide our staff into two separate groups, operations and regional explorations, and Guillermo will be in charge of both.”

With regard to the 2Q results, Neumeyer comments, “We did lose some production at the San Martin Silver Mine, which is our smallest operation. We lost about 100,000 ounces as a result of the Bolaños River drying up, which is quite an unusual event. We had to build a pipeline from about 13 kilometers away to supply water to the community, and obviously the community was very happy that we were able to do that. The pipeline remains in place today, even though it’s not currently being used, because there is plenty of water now in the region.

“Overall, production was up, and it would have been nice to have that 100,000 ounces we lost, but it wouldn’t have been enough to take care of the reduction in silver prices. If you at our press release, you’ll see that the silver price is down 27%, but the revenue is down only by 17%. So we were able to make up a significant amount of the revenue due to the increase in production. So you’ll continually see that increase in production and metal prices have turned around.”

Neumeyer says of that turnaround, “I put together First Majestic in 2002 for the sole reason that I was a big believer in silver. I think the fundamentals for silver are much better than the fundamentals for gold. As we become more reliant on technology, we become more reliant on silver. It’s one of those very important metals in our lives, and most people don’t realize this. Without it, most everything we do on a daily basis simply wouldn’t happen. So we’re depleting stocks of silver, and it’s becoming quite dramatic. The BBC came out with a report just last week saying there were only 17 years of silver left on the planet. There is a major problem with the supply of silver, and I believe we’re going to see much higher silver prices, north of $100 an ounce.
“There are so many derivatives in the market that in a single day on the Comex we have an entire year of physical metal traded in the form of paper, which tells you that the amount of leverage in the system is out of control. I’m a big believer in supply and demand, and I believe it will prevail in the silver market and force the paper market to unleverage.”

Neumeyer is bullish on Mexico as well, explaining, “It’s a very easy place to do business. Geographically, it’s easy to get to, and geologically, it’s a very exciting environment. The tip of the iceberg has been discovered in Mexico, and I think you’re going to see a lot more mines open there over the next 10 to 20 years. There is a lot more metal to be found in Mexico. Politically, it’s a very easy environment to deal in. You’ve got a good system in place, and we’re protected under NAFTA. It’s good regulatory environment, and permitting there is not too difficult. You’ve got local communities who are very supportive of mining, unlike many regions around the world. You have workforces in these towns that are used to having a mine in their backyard, and they’ve relied on these mines for their livelihood for generation after generation. So we come in as Canadian mining companies with investment and new tools for modernization, and these communities grow. Then you really see the wealth of Mexico occurring as a result of mining, and it’s a very exciting thing to witness.”

First Majestic shares have risen by about half since spring. Neumeyer comments, “Silver prices have helped. We saw silver reach below the $26 range a couple of times this year, and there has been a lot of negative feeling in the equity markets. I think stocks generally on a global basis have been sold off regardless of how good fundamentally they are. You saw some good-quality companies trading at some very low valuations, and I think there was some panic out there. People have excuses to sell, so they sell. So that created an opportunity for others who believed that it was a good time to step in. Our stock is around $19 today but is still undervalued based on our growth. Our stock was $26 about 18 months ago, and that was when the company was much smaller. I think once the market believes the silver price is going to be stable or at least on its way back to higher prices, combined with our growth production over the next couple of years, the future is pretty bright for people who own First Majestic stock.”
Neumeyer concludes, “By 2014, our production will be in the 14 million to 15 million ounce area. I am very proud of our cost structure. We’re one of the lowest-cost producers in this space and one of the fastest-growing silver companies in the world.”

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